Stop the tuition madness

(MONEY Magazine) -- For parents with college-bound kids, it seems like a no-win situation. Your child is eyeing the grassy quads and Gothic dorms of Dream U., while you're staring down at a too-small 401(k), a shaky job market, and a house worth a lot less than a few years ago.

Meanwhile, colleges are bidding up tuition prices faster than a hedge fund manager at an art auction. Over the past 10 years the cost of private college has jumped more than 60%, nearly three times as much as incomes over the same period, and will now set you back $42,000 a year on average.

Prices at public colleges have shot up even more, nearly doubling to $21,000 for in-state students. Got younger kids? By 2020 you're looking at a four-year bill that's likely to top $240,000 for private schools and $155,000 at public universities. Sure there's financial aid, but scholarships aren't keeping up with tuition inflation. So long, retirement hopes; hello again, boss.

Your children will suffer, too, if they're forced to start their adult lives with onerous debt. "Student loans can affect every decision young adults make: whether they can go to graduate school, buy a house, even start a family," says Patrick Callan, president of the Higher Education Policy Institute.

It doesn't have to be this way. There are ways to halt the tuition spiral, evidenced by innovative programs already working at dozens of colleges across the country. If enough of them were widely embraced, college would certainly become more affordable. Tools are also being developed to help you assess whether a particular school is worth its high price tag.

What leaders can do

Innovative ideas to tame tuition hikes are springing up in higher-ed circles. These four show real promise.

Refocus on academics

Over the 10 years that ended in 2009, spending by large public universities on instruction rose about 10% in real terms, reports the Delta Cost Project, a nonprofit that analyzes college expenses.

Meanwhile, spending on student services jumped 19%, and outlays for operations shot up 20%, as the bills for everything from maintaining lavish dorms and spa-like gyms to salaries for the legions of administrators it takes to run large universities these days took their toll.

Colleges don't have to cut into academic programs, though, to keep rising costs in check, as shown by a report last year from McKinsey on highly efficient colleges. Among the easier-to-implement ideas: shifting some services online and outsourcing dining and IT. Many of the practices actually improve the educational experience for students.

A mentoring program at Southern New Hampshire University in Manchester, for example, keeps costs per student low by helping ensure students are not wasting money on unnecessary credits. And a shift to a year-round calendar at Brigham Young University in Idaho has led to a 32% drop in costs per student, with extra tuition revenue more than off-setting a rise in faculty costs.

A bigger, bolder move to hold down costs: Boost the number of hours professors teach. Using data from the University of Texas at Austin, Richard Vedder, head of the nonprofit Center for College Affordability and Productivity, concluded that the average public research university could reduce its faculty size at least 25% by requiring professors to teach one or two more classes a year. While some faculty argue that heavier teaching loads would impede research -- and could spur some teachers to flee to private colleges -- Vedder's data show that many UT professors successfully juggle large teaching loads and research.

Then there's the ultimate sacred cow: college sports. Spending on athletics has accelerated at twice the pace of spending on academics, according to the Knight Commission on Intercollegiate Athletics, even though most programs lose money. Of the top 120 Division I football teams, for example, only 22 showed a profit last year. Defenders say those programs are still valuable because they can lead to a spike in admissions applications and alumni donations.

Yet research on the impact of championship teams finds mixed results at best. A big win can lead to a short-term surge in applicants but may not draw top-quality students. Nor is there clear evidence of a sustained rise in alumni giving, says Jonathan Meer, an economist at Texas A&M. Of course most sports fans look beyond the cost-benefit analysis. "There's a spillover effect when your team wins -- you feel proud of your school -- and that's something that needs to be taken seriously," says Duke public-policy professor Charles Clotfelter, author of Big-Time Sports in American Universities.

Prospects for success. Financial turmoil is finally forcing most colleges to take cost cutting seriously, says Jane Wellman, executive director of the Delta Cost Project. Many state schools in particular, however, are seeking quick cuts by dropping programs or consolidating departments. There's no widespread move for the broader reforms outlined by McKinsey and Vedder. One encouraging sign: The pace of athletic spending at least seems to be slowing. Among the top 120 programs, median expenses rose less than 2% last year, vs. about 11% in 2009.

Leverage technology

High technology -- long an expense blamed for fueling tuition hikes -- is starting to pay off in big efficiencies as colleges use sophisticated software to slash electricity and phone costs. Students are seeing direct benefits, too. Several hundred professors around the country are ditching traditional textbooks in favor of free open-source e-textbooks or low-cost print-on-demand books that cost hundreds of dollars less a year.

In the best cases, cost-saving technology also helps students learn better.

Case in point: More than 300 schools, from public flagships like the University of Alabama to private colleges such as DePaul, are lowering costs by reducing the number of traditional lectures, and replacing them with mandatory skill drills at tutor-staffed computer labs.

The National Center for Academic Transformation reports math courses that blend teaching software and personal interaction with faculty cost about 30% less per student than traditional courses while improving pass rates. "You only learn math by doing it, not by watching it being done," says Ray Purdom, who runs a learning center at the University of North Carolina at Greensboro. Similar results have been shown for science, language, and psychology classes.

Prospects for success. Skeptics worry about replacing teachers with computers, partly because some research shows higher failure rates in online courses. Fully online classes, however, are very different from the blended approach advocated by educators like William Powell, associate provost of the University of Southern Mississippi, which redesigned several courses as tech-lecture combinations and watched costs go down and grades up as a result. "Sometimes you have to be slapped in the face by innovative ideas," he says.

One sticking point: the capital needed for course redesigns and computer labs at a time when budgets are being slashed. Leaders like William Kirwan, chancellor of the University System of Maryland, are instead tapping private donors for funding. Thanks in part to lower-cost, tech-enhanced classes, the university's College Park flagship has raised tuition only 6% since 2007, vs. 22% for the average public.

Make the payoff clear

Families invest huge sums in a college education for their children without access to key information: How well do students really learn at a given school? Do graduates land good jobs?

Colleges have long kept the relevant data secret or simply didn't track it. Better information would help families decide whether a particular college is worth the price. "Parents want to know they aren't wasting their money," says Julie Morgan, a policy analyst for the Center for American Progress, a think tank.

Pressure from parents and government officials is finally beginning to yield better data. More than 500 schools have used the Collegiate Learning Assessment, a test of student gains in reasoning and critical thinking; 1,400 have participated in the National Survey of Student Engagement, which gathers data on students' academic experiences. Of those, about 500 have gone public with results. Starting next year, data for more than 300 four-year public colleges will be posted at the web site for College Portrait for Undergraduate Education.

It's even tougher to find out how many graduates land jobs and how much they earn. Starting next June, however, for-profit colleges and some vocational programs will be required to report data on graduate debt burdens and jobs. Some experts believe nonprofit schools could be next.

"A system will be in place to link Social Security income data with loan repayments, so Congress could extend the rule to nonprofits as well, says Kevin Carey, policy director of Education Sector, a Washington think tank.

Prospects for success. Many colleges will continue to resist revealing outcomes, since the numbers may suggest they aren't worth $40,000 a year. In "Academically Adrift," authors Richard Arum and Josipa Roksa analyzed data for more than 1,600 students and found that 36% failed to show significant improvement in learning over four years of college.

Yet schools will eventually be pushed into greater disclosure, says Jamie Merisotis, head of the Lumina Foundation. In fact, you can already find some job and income data for individual colleges at PayScale.com.

Work first, pay later

Since many families can't afford to shell out tuition upfront and a college degree generally leads to higher-salaried jobs, why not let students pay for their BA after they graduate with their now bigger earnings?

The idea of taxing a graduate's income to pay for college, promoted in 1955 by Nobel laureate Milton Friedman, was adopted by Australia in 1989. Students cover as much (or little) of their college bill as they want while in school; once they graduate, the government subtracts a surtax from their paychecks until the rest is paid off. Result: The number of Australian college graduates has risen sharply.

Limited versions of payment plans linked to future earnings are springing up here too. In 2009 the federal government introduced a loan-repayment option that caps payments at 10% of disposable income; the standard option keeps the amount you pay per month level no matter what your salary is. "Now if you have a bad year, you won't go to the poorhouse," says Lauren Asher, executive director of the Project on Student Debt.

Clarkson University in Potsdam, N.Y., is applying the idea in a way that gives the college a real incentive to make sure students succeed in life. Last year Clarkson president Tony Collins, a native Australian, offered teen entrepreneur Matthew Turcotte a full scholarship in return for 10% of Turcotte's web design business (see the box, top left). Collins is so pleased with Turcotte's 3.95 GPA and booming business that Clarkson plans to recruit up to five more entrepreneurs with the same deal in 2012.

Prospects for success. Tuition deferment plans have had a bad rep with U.S. colleges ever since the 1970s, after a Yale experiment with one failed when some grads didn't pay in full. The IRS isn't keen on administering a graduate tax either.

Even boosters such as Collins acknowledge that colleges need dollars upfront to run their operations. He suggests phasing in these plans as one payment option; colleges would collect tuition from some students right away while waiting for the long-term investments to pay off. "We've had a sea change in the economics," Collins notes. "It's time to think about doing business differently."